Common Cents for November 2, 2018

November 1, 2018, by John Norris

The opinions expressed herein are those solely of John Norris, and do not necessarily reflect the views or opinions of Oakworth Capital Bank, its management, its ownership, or its associates.

The $64,000 Question here at the end this week is: “who is going to win the midterm elections this upcoming Tuesday?” I am going to go out on a very short limb and say the media outlets will, as millions of us will tune into the channel or website of our choice to watch the results. Will the Democrats pick up seats or even a majority in the Congress? Will the Republicans hold onto their majorities, even if they are razor thin? What does this mean for the economy and the markets?

Inquiring minds want to know!

Regardless of what happens in the elections, I will make one observation: “no elected official has ever been so stupid as to legislate away their own wealth. Someone else’s? That is debatable, but no one gets into politics to go to the alms house…if you catch my drift.” This is important.

According to what I could find on the Internet, it seems the median net worth for a member of Congress was $1.1 million in 2015. The median was $3.2 million for Senators, and $900 thousand for Representatives. To be sure, there were outliers on either end of the spectrum, if you will, but the general takeaway is pretty simple: Capitol Hill is a pretty wealthy place, very wealthy even. So much so, I would find it extremely difficult to believe the uber rich would pass laws which would impoverish themselves.

Taken another way: the individual members of Congress have way too much to personally lose by being economically stupid. Period, and end of discussion. This is a primary reason why political debate has much more to do with social issues than economic ones, seriously.

To be sure, Republican economic thought has traditionally, and arguably, been more business friendly, particularly large business. However, Democrats haven’t exactly been on record trying to destroy the US economy, as much as many think they have. After all, the markets and the economy performed well during Bill Clinton, and the markets really enjoyed the Obama Administration. We can debate whether things would have been better under the GOP in either case, but the numbers from point A to point B are what they are…pretty good, if not better than pretty good. Along those lines, is Bill Belichick a great coach OR was he just lucky to be coaching the Patriots while Tom Brady was playing? How about the other way around? They are both going into the Hall of Fame regardless.

The point here is simple: it is NOT in the best interests of either the GOP or DNC to throttle the US economy. They just have differing ideas on how to grow it.

The problem, if you want to call it a problem, for the Democrats is folks like Bernie Sanders and Alexandria Ocasio-Cortez have sort of ‘highjacked’ the media with their economic theories, and it is debatable if those two are even Democrats. Simply put, they make the party look kind of economically naïve by their arguably loose association, sorry. Still, unless you really consume a lot of economic data and news, the lunatic fringe economic theories of the extreme far left ARE presumed to be THE economic policies of the Democratic Party as a whole.

They aren’t, seriously. Throw out the official platforms, of both parties, politicians vote with their wallets as well. Platforms? You can consider them marketing material.

Trust me, Nancy Pelosi probably has more in common with Ted Cruz’ economic platform than Alexandria Ocasio-Cortez’s, at least privately. However, IF the extreme far left is marketable to a certain segment of the population, she/they will use it to bring undecided voters into the proverbial fold. That is the hard part of politics.

Anyone getting hot under the collar yet? Just wait, I am going to talk about predestination next! Ha.

Interestingly enough, state and local politics are probably as important, if not more so, than national midterm elections. The folks in Washington are SOOOOOO concerned about 2-year election cycles, I really don’t envision either party doing anything terribly outrageous in 2019, regardless of next week’s outcome. While the local folks also have to worry about election cycles, our country is decidedly blue or red ‘close to home’ even if we are purple in aggregate.

You see, there are three things which engender economic growth more than anything else. They are: 1) consistent adherence to the rule of transparent and definable law; 2) strong, consistent, and enforced individual property rights and/or ownership of property, and; 3) the development of human capital. IF you have these things over time, you WILL have economic success. Perhaps interestingly enough, these things are MOST efficiently developed AND enforced at the local level. Please note I didn’t mention taxes. If taxes alone were the reason for either success or failure, Alabama would be the wealthiest state in the Union. It isn’t.

While there are plenty of people who hoot & holler, wring their hands and gnash their teeth, fuss and fume, and raise holy hell about national politicians, they are often missing the point. Their buddies or the officials who are ‘one of us’ who are skimming from the pot and diverting local resources, these people are the problem. They just don’t get the recognition they deserve. So, folks are welcome to vote for corrupt local officials all they want just because they look, act, and talk like they do. However, they can’t blame either Donald Trump or Nancy Pelosi for their misfortunes.

Whew…I feel so much lighter now.

The truth is, well, I have a confession to make. I won a senior class election in high school by knowingly making promises I wouldn’t, couldn’t, and shouldn’t keep. It was a farce, but I needed to fill out my transcript for college and was in a lighthearted mood as I walked up to the podium to make my pitch to be treasurer for the Class of 1986 at Mountain Brook High School.

What promises did I make? Well, I promised to get rid of apartheid in South Africa. That was a good one. I also promised to keep Mr. Velotas from creeping around the boys’ restrooms trying to catch smokers in between classes. I promised to quadruple the class budget through shrewd investing in penny stocks to pay for Spring Break, and a host of other nonsense. No one believed me, as I made something of a mockery of the process, and the room filled with great gales of laughter from the stoners to the jocks to the band members to the vidiots (folks really into video games) to, well, everyone.

The end results? I won the election; didn’t keep a single promise, beefed up my college transcript, and for the last 33 years students at Mountain Brook High School have had to submit their campaign speeches to the Vice Principal’s office for approval. No kidding.

In fact, I found out about that last point from my daughter who ran for class office 3 years ago. Oh, she didn’t know I was the culprit, just some “guy a long time ago made a speech about apartheid and ever since then…” It is good to be remembered even when you aren’t.

In the end, pay closer attention to the politicians at home, as opposed to the ones at the national level. The midterm elections in Washington? They are fun to talk about and dissect, but, unless something really weird happens, investors will throw that brick in the wall of worry to the side quicker than you might imagine.

With that said, and only somewhat laughingly, IF Washington adopts the Bern’s economic theory, for whatever reason, I WILL be dropping some sell tickets and buying gold…but that ain’t gonna happen next week.

 

Have a great weekend

John Norris